Revenue for the closely-watched fixed-income, currency and commodities unit fell 15%, and revenue from market-making was down 30%. It’s likely that both drops are related to the Volcker rule, and analysts will be anxious to know more about the bank’s plans for operating under heightened regulations.

Goldman also set aside an extra $561 million for litigation and regulatory expenses, more than double the $260 million it set aside a year ago. That’s a big jump, especially considering that the year-ago quarter included provisions for a big foreclosure settlement. Analysts are sure to press the bank for more information about what lawsuits or government penalties might be on the horizon. Goldman still has not settled a lawsuit over mortgage-backed securities with the Federal Housing Finance Agency, and the Wall Street Journal reported last week that federal investigators have started probing banks, including Goldman, over mortgage securities sold after the financial crisis.

Among the fourth-quarter bright spots, Goldman made more money underwriting stock offerings and advising clients. Its own stock investments also gained value. And though earnings and revenue were down, they still beat analysts’ expectations.

What was behind the 15% drop in revenue from trading fixed-income, currency and commodities? In a news release, Goldman blames “significantly lower” mortgage revenue, as well as declines in interest-rate products, currencies and commodities. “Economic uncertainty” also kept clients on the sidelines. The bank’s sale of its European insurance business helped cushion the blow.

Goldman is cutting back. For the year, compensation expenses fell 3%, and a key measure of banker pay, the compensation-to-revenue ratio, fell to 36.9% from 37.9% for 2012.

Other expenses dipped 2%, reflecting a decline in occupancy fees and insurance reserves.

“GS continues to do what it needs to do to produce adequate margins and returns while setting the stage for better operating leverage should revenues pick up (IB pipeline up again FYI),” ISI Financials analyst Glenn Schorr wrote in a note to clients.

Schwartz says Goldman has been preparing for the Volcker rule for more than three years. In 2010, when the Dodd-Frank bill was passed, Goldman started closing down its prop trading desks, including Goldman Sachs Strategies and the global macro proprietary trading desk. In 2012, the bank announced it would redeem certain hedge fund investments.

Matt O’Connor of Deutsche Bank asks if there are any “structural changes” planned for the fixed-income unit. Goldman executives, including CEO Lloyd Blankfein, have stressed that Goldman is committed to the business even as rivals like Morgan Stanley scale back, both because of regulation and disappointing markets.

Schwartz says it’s too early to figure out the impact of new regulations (like the Volcker rule, though he doesn’t mention it by name). He says Goldman will benefit as competitors exit.

“Now, we’ve been building a lot of operating leverage into our fixed-income franchise over the last couple of years and at the same time we feel very comfortable with our relative position in all of our businesses.”

Schwartz says there’s “certainly no change in strategy” on Goldman’s commodities unit – “It’s just too important of a business for our clients” – though reports in November said the bank was shopping its metals warehousing unit.

Schwartz called a recent Fed paper on banks holding commodities was “a good step.”

“It’s another step in the regulatory process where people are reviewing the businesses.”

A couple of analysts ask if the 37% comp-to-revenue ratio is what Goldman bankers should get used to. (It was 44% in 2007, before the financial crisis so obviously imploded, and 48% in 2008.)

Schwartz says there’s no change in the compensation philosophy.

“We actually think it’s quite important to maintain our philosophy around compensation and for all of our employees at Goldman Sachs to understand it, understand their obligation to the firm and the context of the compensation philosophy,” he said. “Ultimately, obviously as the largest (unit) of our cost structure we incorporate everything you think we should put into that, including our obligation to our shareholders.”

Speaking of banker pay, the average compensation at Goldman was $383,374 in 2013, down from $399,506 in 2012. It’s the third year in a row that average pay has been below $400,000. (Cue the tiny violins.)

Analyst Chris Wheeler of Mediobanca asks about bonus caps in Europe and whether that will cause bankers to decamp for New York. Bank of England governor Mark Carney (a former Goldman employee) just spoke out against the EU’s bonus limits.

Schwartz declines to follow suit. He said the potential impact was “small in the context of the firm.”

“Obviously, Europe is important to us strategicically. … We’ll work with the regulators and we’ll comply accordingly.”

Goldman added about 500 employees over the year, a 2% bump to 32,900 from 32,400. Susquehanna Financial analyst Doug Sipkin asks about the bank’s plans for headcount.

Schwartz says there are “no plans for any significant changes.” But the details, he added, should reflect the bank’s overall cost-cutting strategy, such as adding to the lower-cost Salt Lake City office.

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